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HMRC internal manual

Corporate Finance Manual

Foreign exchange: accounts drawn up in a foreign currency: where the presentation currency and the functional currency are the same

Company or permanent establishment in the UK preparing accounts in a currency other than sterling


This section applies in cases falling outside CTA10/S5, S6 or S7. It deals with the normal foreign currency accounts case where the presentation currency is the same as the functional currency.

The profit or loss in the foreign currency after capital allowances and adjustments made under the Corporation Tax rules is translated into sterling. This applies to profits or losses calculated in accordance with GAAP so includes profits or losses from a trading or rental business, loan relationships, derivative contracts and intangible fixed assets. It excludes capital gains, foreign dividends etc, which are calculated in sterling.


The London branch of a US company submits a return of accounts for the year to 31 December 2010 showing the following:

Income $200,000
Expenses $125,000 (including entertainment expenditure $10,000)
Capital allowances $15,000
Profits $60,000
Losses brought forward £8,750 (in sterling).

The profits have to be computed for corporation tax in accordance with generally accepted accounting practice. The corporation tax rules disallow entertainment expenditure so the net profit is $70,000. This is translated into sterling using the average exchange rate for the year £1:$1.56 giving a profit for UK tax purposes of £44,871 less £8,750 losses brought forward is £36,121.